Free or equal? 30 years after Milton Friedman’s Free to Choose (Part 2)

In 1980 economist and Nobel laureate Milton Friedman inspired market reform in the West and revolutions in the East with his celebrated television series “Free To Choose.”
Thirty years later, in this one-hour documentary, the young Swedish writer, analyst and Cato Institute Fellow Johan Norberg travels in Friedman’s footsteps to see what has
actually happened in the places Friedman’s ideas helped transform. In location after location Norberg examines the contemporary relevance of Friedman’s ideas in the 2011 world of globalization and financial crisis. Central to his examination are the perennial questions concerning power and prosperity, and the trade-offs between individual liberty and income equality.

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I have enjoyed reading this series of reviews by T. Kurt Jaros on Milton and Rose Friedman’s book “Free to Choose.” I hope you enjoy it as much as I did.

T. Kurt Jaros is currently a Master’s student studying Systematic Theology at King’s College in London. He holds a B.A. in Philosophy and Political Science cum laude and an M.A. in Christian Apologetics high honors from Biola University, an evangelical Christian university outside of Los Angeles.

He enjoys learning and thinking about theology, specifically historical theology, philosophical theology and philosophy of religion, and issues pertaining to monergism and synergism. Additionally, he enjoys learning and thinking about political philosophy, economics, American political history, and campaigns.

Friedman begins the chapter by explaining the difference between a command and a voluntary economy. Like a military, there is a chain of commands that take place. Yet the general cannot be entirely accountable for everything that a private does. That is why “commands must be supplemented by voluntary cooperation,” which is a more fundamental technique of coordinating activities. Friedman argues that there is no society that operates entirely on the command method or the voluntary method. Even in the Soviet Union there were moonlighters who would take extra pay to fix a household problem same day than for the homeowner to wait months for the government.

The market functions in not-so-obvious ways. Leonard E. Read wrote a story about how a pencil is made, from the forests of northwestern America to the factories in Indonesia. Yet at the store, we exchange some of our money for some pencils. Astoundingly, “no one sitting in a central office gave orders to these thousands of people” and “no military police enforced the orders that were not given.” How could this be? Adam Smith understood this clearly: “if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it.” Smith observed that in a free market, buyers and sellers would coordinate together voluntarily to make everyone better off. Economic order emerges from individuals seeking their own interest.

The price system that forms helps to naturally regulate the market in three ways: transmits information, incentivizes price efficiency and distributes income.

1. Transmits information: Only necessary information is transmitted between buyer and sellers. This includes information of changes in demand and supply but not causes of the changes. “A major problem in transmitting information efficiently is to make sure that everyone who can use the information gets it without clogging the ‘in’ baskets of those who have no use for it.” The price system naturally solves the problem because the people who are looking for the information search it out to better their situation. From the consumer’s perspective, this explains why I spend so much time looking for good deals between different grocery stores! However, the government can also me a major source of interference with the natural market when it sets tariffs on international trade, fixes wages and prices, regulates certain industries, and produces erratic inflation.

2. Incentivizes price efficiency: Understanding incentives was the easiest of the three natural regulations for me to grasp. As consumers, if there is a high price for an item, we tend to economize as much as we can to get our money’s worth. My wife is always getting on to me for trying to penny-pinch, and that’s more true for the larger purchases we make. But producers also have incentives when it comes to running a business. They want to run a business as cheaply as possible to maximize their profit. Additionally, workers consider incentives. “Satisfaction in a job may compensate for low wages. On the other hand, higher wages may compensate for a disagreeable job.”

3. Distributes income: Lastly, the market redistributes wealth in a natural way. Some people are unhappy with the distribution of wealth and so look to where they think the grass is greener. “In a command system envy and dissatisfaction are directed at the rulers. In a free market system they are directed at the markets.” However, “fixing” the free market causes disincentives and leads to inefficiencies of wealth growth. The command system is worse. Workers are unhappy when bureaucracies tell them what to do and when the government builds things, nobody takes responsibility for them: “when everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition.” The command system does not transmit information or incentivize as efficiently as the free market, and it distorts the incentives for various income distributions.

I must say that I have lots of respect for Reason Magazine and for their admiration of Milton Friedman. However, I do disagree with one phrase below. At the end of this post I will tell you what sentence it is. Uploaded by ReasonTV on Jul 28, 2011 There’s no way to appreciate fully the […]

Milton Friedman on Hayek’s “Road to Serfdom” 1994 Interview 1 of 2 Uploaded by PenguinProseMedia on Oct 25, 2011 Says Federal Reserve should be abolished, criticizes Keynes. One of Friedman’s best interviews, discussion spans Friedman’s career and his view of numerous political figures and public policy issues. ___________________ Two Lucky People by Milton and Rose Friedman […]

What a great man Milton Friedman was. The Legacy of Milton Friedman November 18, 2006 Alexander Tabarrok Great economist by day and crusading public intellectual by night, Milton Friedman was my hero. Friedman’s contributions to economics are profound, the permanent income hypothesis, the resurrection of the quantity theory of money, and his magnum opus with […]

Milton Friedman videos and transcripts Part 7 On my blog http://www.thedailyhatch.org I have an extensive list of posts that have both videos and transcripts of MiltonFriedman’s interviews and speeches. Here below is just small list of those and more can be accessed by clicking on “Milton Friedman” on the side of this page or searching […]

Milton Friedman at Hillsdale College 2006 July 2006 Free to Choose: A Conversation with Milton Friedman Milton Friedman Economist Milton Friedman is a senior research fellow at the Hoover Institution at Stanford University and a professor emeritus of economics at the University of Chicago, where he taught from 1946-1976. Dr. Friedman received the Nobel Memorial […]

Milton Friedman said that getting George Bush I to be his vice president was his biggest mistake because he knew that Bush was not a true conservative and sure enough George Bush did raise taxes when he later became President. Below is a speech by George W. Bush honoring Milton Friedman: Milton Friedman Honored for […]

Below is a discussion from Milton Friedman on Bill Clinton and Ronald Reagan. February 10, 1999 | Recorded on February 10, 1999 audio, video, and blogs » uncommon knowledge PRESIDENTIAL REPORT CARD: Milton Friedman on the State of the Union with guest Milton Friedman Milton Friedman, Senior Research Fellow, Hoover Institution and Nobel Laureate in […]

Milton Friedman and Chile – The Power of Choice Uploaded by FreeToChooseNetwork on May 13, 2011 In this excerpt from Free To Choose Network’s “The Power of Choice (2006)”, we set the record straight on Milton Friedman’s dealings with Chile — including training the Chicago Boys and his meeting with Augusto Pinochet. Was the tremendous […]

Milton Friedman’s negative income tax explained by Friedman in 1968: President Obama c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500 Dear Mr. President, I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a […]

Milton Friedman on the American Economy (5 of 6) Uploaded by donotswallow on Aug 9, 2009 THE OPEN MIND Host: Richard D. Heffner Guest: Milton Friedman Title: A Nobel Laureate on the American Economy VTR: 5/31/77 _____________________________________ Below is a transcipt from a portion of an interview that Milton Friedman gave on 5-31-77: Friedman: […]